What is Unrealized P/L and Floating P/L?

In your trading platform, you will see something that says “Unrealized P/L” or “Floating P/L” with green or red numbers beside them.

In this lesson, we will explain what Unrealized P/L and Floating P/L are.

There are basically two different types of when trading “profit or loss”, also known as “P/L”. Each is important for a trader to know, but let's discuss them and see the differences.

Unrealized P/L

Unrealized P/L is the profit or loss held in an active trade whose position is still open.

Unrealized P/L is also referred to as “Floating P/L” because the profit or loss continuously changes since the positions are still running.

For example: If you had a position which was running positive, which later turned against you, then it will be called as an unrealized loss, but not unrealized profit though you were in the positive before.

When you have open positions, your unrealized P/L will continue to fluctuates with the current market prices. For instance when you currently have an unrealized profit, if price move against you, the unrealized profit can become an unrealized loss.

Example: Floating Loss

Suppose say your account is in USD and you are currently long 10,000 units EUR/USD, which was bought at 1.15000. The current exchange rate for EUR/USD is 1.13000.

Let‘s simplify the position’s Floating P/L:

Floating P/L = Position Size x (Current Price - Entry Price)

Floating P/L = 10,000 x (1.13000 - 1.15000)-200 = 10,000 x (- 0.0200)

Now the position is down to 200 pips. Since youre trading a mini lot, each pip is worth $1. Therefore you currently have a Floating Loss of $200 (200 pips x $1).

It is considered to be a Floating Loss because you have NOT closed the trade yet. Normally, when a loss remains floating, you are expecting that the price will turn around.

If EUR/USD move higher above your original entry price to 1.16000, then you would now have a Floating Profit. The position is now up 100 pips.

Since youre trading a mini lot, each pip is worth $1. So you currently have a Floating Profit of $100 (100 pips x $1).

Realized P&L (Profit and Loss) refers to profit or loss on a completed trade. This means a position which has been initiated and then closed. It also includes any and all fees and commissions associated with the transaction.In other words, your profits or losses only become realized when the positions are CLOSED. Realized P/L

This is the only time when your account balance will change to reflect any gains or losses.

Once you closed a position with profits, your account balance will increase. If you closed with losses, then your account balance will decrease.

Example: Realized Loss

Let's say your account is in USD and you are currently long 10,000 units of EUR/USD, which was bought at 1.15000. The current exchange rate for EUR/USD is 1.13000.

Let‘s calculate the position’s Floating P/L:

Floating P/L = Position Size x (Current Price - Entry Price)

Floating P/L = 10,000 x (1.13000 - 1.15000)-200 = 10,000 x (- 0.0200)

The position is down to 200 pips. But since youre trading a mini lot, each pip is worth $1. And you will currently have a Floating Loss of $200 (200 pips x $1).

But you cant be losing anymore and decide to close the trade right then and there.

Thus It is a floating loss because you have NOT closed the trade yet.

You've realized the $200 loss and the cash is DEDUCTED from your account balance.

When you opened the trade, you had $1,000 as your Balance. But after you closed the trade with a $200 loss, your Balance is now $800.

Example: Realized Profit

Assuming say your account is in USD and you are currently long 10,000 units of EUR/USD, which was bought at 1.15000 and The current exchange rate for EUR/USD is 1.16000.

We should first calculate the positions Floating P/L:

Floating P/L = Position Size x (Current Price - Entry Price)

Floating P/L = 10,000 x (1.16000 - 1.15000)

100 = 10,000 x (0.0100)

The position is up to 100 pips. But as youre trading a mini lot, each pip is worth $1. Therefore you currently have a Floating Profit of $100 (100 pips x $1).

It is a floating profit because you have NOT closed the trade yet. Later you got a noise that you can no longer exit your trade and so you close the trade.

Later Youve just discovered the $100 gain and the cash is added to your account balance. After you opened the trade, you had $1,000 as your Balance. But as you closed the trade with a $100 gain, your new Balance now becomes $1,100.

Profit Isn‘t Real Until It’s Realized

The difference between realized and unrealized profit is precise, but it can mean the difference between a profitable trade or a losing trade.

It is also important for traders to distinctly know how to differentiate between “realized” P/L and “unrealized” P/L

• Realized profits are gains that have been converted into cash and added to your account balance.

• ·Realized losses are losses that have been converted into cash and subtracted from your account balance.

In other words, for you to realize profits from a trade youve made, you must receive cash and not simply observe the value of your trade increase without exiting the trade.

Unrealized profit is theoreticalprofit or “paper profit” that is currently available, but could be taken away at any moment if the price moves against the trade.

When it comes to love, think about “the one” that got away.

At one point in your life, he or she was an “unrealized” spouse.

You never built up the courage to pop the question and now youre forever heartbroken with a “realized” loss of the perfect spouse.

This is absolutely what happened to Bob.

This depressing life lesson from Bobs sad love story can be applied to trading.

To this day, Bob is yet single.

If you have not closed out of your position and “realized” your gain, you could still lose some, or all, of your profits.

Realized profit is real profit that can no longer be affected by price changes because it is no longer part of an active trade.

It is real money that is added to your Balance and can be withdrawn from your trading account and transferred into your bank account.

Recap

In this lesson, we learned about the following:

• Unrealized P/L or Floating P/L refers to the profit or loss held in your current open positions….your currently active trades.

• Realized P/L refers to profit or loss from a completed trade.

Lets move on and learn about the concept of margin.